CIR vs.

MARUBENI

11 FEB
GR No. 137377| J. Puno

Facts:
CIR assails the CA decision which affirmed CTA, ordering CIR to desist from
collecting the 1985 deficiency income, branch profit remittance and contractor’s
taxes from Marubeni Corp after finding the latter to have properly availed of the
tax amnesty under EO 41 & 64, as amended.

Marubeni, a Japanese corporation, engaged in general import and export trading,

financing and construction, is duly registered in the Philippines with Manila
branch office. CIR examined the Manila branch’s books of accounts for fiscal year
ending March 1985, and found that respondent had undeclared income from
contracts with NDC and Philphos for construction of a wharf/port complex and
ammonia storage complex respectively.

On August 27, 1986, Marubeni received a letter from CIR assessing it for several
deficiency taxes. CIR claims that the income respondent derived were income
from Philippine sources, hence subject to internal revenue taxes. On Sept 1986,
respondent filed 2 petitions for review with CTA: the first, questioned the
deficiency income, branch profit remittance and contractor’s tax assessments and
second questioned the deficiency commercial broker’s assessment.

On Aug 2, 1986, EO 41 declared a tax amnesty for unpaid income taxes for 1981-
85, and that taxpayers who wished to avail this should on or before Oct 31, 1986.
Marubeni filed its tax amnesty return on Oct 30, 1986.
On Nov 17, 1986, EO 64 expanded EO 41’s scope to include estate and donor’s
taxes under Title 3 and business tax under Chap 2, Title 5 of NIRC, extended the
period of availment to Dec 15, 1986 and stated those who already availed amnesty
under EO 41 should file an amended return to avail of the new benefits. Marubeni
filed a supplemental tax amnesty return on Dec 15, 1986.
CTA found that Marubeni properly availed of the tax amnesty and deemed
cancelled the deficiency taxes. CA affirmed on appeal.

Issue:
W/N Marubeni is exempted from paying tax
Held:
Yes.
1. On date of effectivity
CIR claims Marubeni is disqualified from the tax amnesty because it falls under
the exception in Sec 4b of EO 41:

“Sec. 4. Exceptions.—The following taxpayers may not avail

themselves of the amnesty herein granted: xxx b) Those with income
tax cases already filed in Court as of the effectivity hereof;”
Petitioner argues that at the time respondent filed for income tax amnesty on Oct
30, 1986, a case had already been filed and was pending before the CTA and
Marubeni therefore fell under the exception. However, the point of reference is
the date of effectivity of EO 41 and that the filing of income tax cases must have
been made before and as of its effectivity.

EO 41 took effect on Aug 22, 1986. The case questioning the 1985 deficiency was
filed with CTA on Sept 26, 1986. When EO 41 became effective, the case had not
yet been filed. Marubeni does not fall in the exception and is thus, not
disqualified from availing of the amnesty under EO 41 for taxes on income and
branch profit remittance.

The difficulty herein is with respect to the contractor’s tax assessment (business
tax) and respondent’s availment of the amnesty under EO 64, which expanded
EO 41’s coverage. When EO 64 took effect on Nov 17, 1986, it did not provide for
exceptions to the coverage of the amnesty for business, estate and donor’s taxes.
Instead, Section 8 said EO provided that:

“Section 8. The provisions of Executive Orders Nos. 41 and 54 which

are not contrary to or inconsistent with this amendatory Executive
Order shall remain in full force and effect.”
Due to the EO 64 amendment, Sec 4b cannot be construed to refer to EO 41 and
its date of effectivity. The general rule is that an amendatory act operates
prospectively. It may not be given a retroactive effect unless it is so provided
expressly or by necessary implication and no vested right or obligations of
contract are thereby impaired.

2. On situs of taxation
Marubeni contends that assuming it did not validly avail of the amnesty, it is still
not liable for the deficiency tax because the income from the projects came from
the “Offshore Portion” as opposed to “Onshore Portion”. It claims all
materials and equipment in the contract under the “Offshore Portion”
were manufactured and completed in Japan, not in the Philippines,
and are therefore not subject to Philippine taxes.
(BG: Marubeni won in the public bidding for projects with government
corporations NDC and Philphos. In the contracts, the prices were broken down
into a Japanese Yen Portion (I and II) and Philippine Pesos Portion and financed
either by OECF or by supplier’s credit. The Japanese Yen Portion I corresponds
to the Foreign Offshore Portion, while Japanese Yen Portion II and the Philippine
Pesos Portion correspond to the Philippine Onshore Portion. Marubeni has
already paid the Onshore Portion, a fact that CIR does not deny.)

CIR argues that since the two agreements are turn-key, they call for the supply of
both materials and services to the client, they are contracts for a piece of work
and are indivisible. The situs of the two projects is in the Philippines, and the
materials provided and services rendered were all done and completed within the
territorial jurisdiction of the Philippines. Accordingly, respondent’s entire
receipts from the contracts, including its receipts from the Offshore Portion,
constitute income from Philippine sources. The total gross receipts covering both
labor and materials should be subjected to contractor’s tax (a tax on the exercise
of a privilege of selling services or labor rather than a sale on products).
Marubeni, however, was able to sufficiently prove in trial that not all its work was
performed in the Philippines because some of them were completed in Japan
(and in fact subcontracted) in accordance with the provisions of the contracts. All
services for the design, fabrication, engineering and manufacture of the materials
and equipment under Japanese Yen Portion I were made and completed in
Japan. These services were rendered outside Philippines’ taxing
jurisdiction and are therefore not subject to contractor’s tax.Petition
denied.